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Pennsylvania will soon release a study it commissioned that shows the Appalachian Basin is uniquely positioned to compete in the global petrochemicals market, with enough ethane available to support up to four more ethane crackers in addition to Shell Chemical Appalachia LLC's planned facility.

While enthusiasm and optimism has surrounded Shell's plans for a world-scale cracker in Western Pennsylvania, Gov. Tom Wolf's administration wanted hard facts about the true potential of the facility and data to support a long-term development strategy for the opportunities it might create, said Denise Brinley, special assistant to the secretary of the Department of Community and Economic Development (DCED). The state commissioned IHS Markit to conduct a study examining how competitive the region can be in petrochemicals manufacturing, she told a crowd on Thursday at Hart Energy’s Marcellus-Utica Midstream conference in Pittsburgh.

"Our conclusion to all this data is we're sitting in a premiere spot right now, and we can produce products cheaper and transport them cheaper than pretty much anyone else in the world," Brinley said, referring to leading markets for polyethylene in the Midwest, East Coast, Western Europe and Eastern China.

Shell announced last year its intent to move forward with a multi-billion dollar ethane cracker in Beaver County that would be capable of producing 1.5 million metric tons/year (mmty) of ethylene and 1.6 mmty of polyethylene. The region, Shell has said, is within 700 miles of about 70% of the nation’s targeted plastics manufacturers.

Pennsylvania’s study must be finalized, and the state expects to release it in the coming weeks. But Brinley shared some key findings during her presentation at the conference.

Brinley said the study found that there is more than enough ethane to support other crackers in the basin. Those could compete for overseas market share with foreign companies, some of which operate costlier facilities that use other petroleum-based products such as naphtha to produce olefins.

"IHS Markit is projecting that there is room for two more crackers in the Marcellus, this does not include the Utica," she told the audience. "I don't have the Utica graphic for you today, but we're looking at an additional two in the Utica. So we have enough ethane to support up to four additional world-scale crackers in this region. We need to pay attention to that."

When it comes to infrastructure, however, Ohio, Pennsylvania and West Virginia need more of it, according to the study. While the region has adequate processing capacity to separate natural gas liquids (NGL) and natural gas, it needs more fractionation capacity to separate those liquids further. Underground storage is grossly insufficient in the basin, especially if a growing petrochemical industry and the midstream expect to operate stably. The study estimates that the region needs 3.5-7.5 million bbl of liquids storage to foster more development. Currently, there is no underground liquids storage in the region.

Only one storage project has been announced. Mountaineer NGL Storage LLC said last year that it received requests for more than three times its initial planned capacity in Ohio during a nonbinding open season. Mountaineer now plans to offer up to 2 million bbl of initial storage capacity with more than 40,000 b/d of load-in and load-out capacity.

The study also found that de-ethanization capacity is lacking and more y-grade pipelines are needed to get products to market. Once it’s published, Brinley said the DCED plans to develop an internal strategy to support resource development. It would then work on spreading a message about the region's viability as a petrochemical hub.

Ethane is a major part of the gas stream in Appalachia, accounting for more than 50% of the typical NGL barrel there. Speakers at the conference said producers nationwide are currently rejecting 500,000-600,000 b/d of ethane into the gas stream. But that's expected to change in short order.

The Energy Information Administration said earlier this month that ethane production could rise from 1.25 million b/d in 2016 to 1.7 million b/d in 2018 as more petrochemical facilities consume it and new export facilities in Texas and Pennsylvania increase their overseas shipments. Global chemicals demand is expected to increase as well.

"Part of the growth in ethane will simply be recovering what's already being rejected and putting it to beneficial use in crackers that are being built in the Gulf Coast region and crackers being built here in Pennsylvania, as well as exports," said Stuart Nance, vice president of marketing for Reliance Holding USA Inc., a subsidiary of the India-based conglomerate Reliance Industries Ltd.Reliance operates the world's largest refinery in India and has a significant integrated petrochemicals business. It has committed to source ethane from the Gulf Coast for use in three crackers in India.

Four other crackers have been proposed for Ohio and West Virginia. Braskem SA, the petrochemical affiliate of Brazilian construction firm Odebrecht SA, has proposed a facility similar to Shell's for West Virginia, but the company put plans on hold during the commodities downturn in 2015. Thailand state-owned petrochemical and refining company PTT Global Chemical pcl is expected to make a final investment decision this year about a world-scale cracker in Belmont County, OH. Two smaller-sized facilities proposed by Appalachian Resins Inc. in Ohio and Aither Chemicals LLC in West Virginia have been suspended indefinitely.

The Gulf Coast accounts for two-thirds of North America's ethylene output, or 28 mmty, said Director of Integrated Oil and Gas Research at Stratas Advisors Greg Haas. While the Gulf Coast retains an advantage with its supply, customer base, skilled labor and lower construction costs, the abundance of ethane bodes well for the nascent Appalachian petrochemicals industry.

It wasn't always the case, but at about 17 cents/gallon, ethane currently costs a fraction of the naphtha benchmark, which typically follows oil prices.

"We've built in optionality and flexibility to use ethane as a feedstock and import it from the United States," Nance said. "Right now, the cost advantage is significant versus naphtha. We feel like it's going to be a great advantage for our existing petrochemical business."

Senior Editor | Pittsburgh, PAJamison Cocklin joined the staff of NGI in November 2013. Prior to that he worked as business and energy reporter at the Youngstown Vindicator, covering the regional economy and the Utica Shale play. He also served as a city reporter at the Bangor Daily News and did freelance work for the Associated Press. He has a bachelor's degree in journalism and political science from the University of Maine. jamison.cocklin@naturalgasintel.com

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